Sunflower power stalls Taiwan trade deal

Taiwan, the world's biggest maker of iPhones and iPads, has unexpectedly found its economy held hostage by a young generation of digital natives, spawned – ironically – by its high-tech success.

A free trade deal between Taiwan and mainland China, similar to that signed by Australia last week, sits blocked in Taiwan's parliament until the government can appease the demands of the Sunflower protest movement.

As China signs more free trade deals with other countries, the Taiwanese students oppose what they see as "economic unification" for Taiwan.

Dr Yun-Peng Chu, the head of the National Policy Foundation, a government think tank, blames the rise of internet populism for the worsening anti-China sentiment.

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To tackle it, the Taiwan government has taken to social media and Facebook since March. But underlying problems such as youth unemployment triple the national average, and soaring housing prices, also need to be addressed, say analysts.

"There is a generational mindset gap," says Jiann-Chyuan Wang, vice president of the Chung-Hua Institute for Economic Research. "We need to build more career paths, and have more vision for the young generation."

Taiwan's disposable income has risen just 1 per cent in 10 years, a cause for the discontent, Wang says. But he argues without the cross-straits free trade trade deal, Taiwan's services industry won't survive.

A free trade deal with China on goods was also due to be negotiated, and has become urgent from the Taiwan government's perspective, after fierce rival South Korea announced a free trade agreement with China a fortnight ago.

A third of Taiwan's industrial products sold to China will be at a disadvantage compared to South Korean competitors, and Taiwan's exports are forecast to drop 1.34 per cent as a result.

But the trade deals cannot become law until Taiwan's fractious parliament has agreed on the rules of a new process that will measure each deal against national security – as demanded by the students. New free trade pilot zones being set up within Taiwan, targeting foreign companies, are also unable to offer generous tax exemptions until the oversight law is passed.

Next Saturday, Taiwan goes to the polls to elect 11,000 mayors, village chiefs and town councillors. President Ma has urged mayoral candidates in 11 cities to push the opposition DPP party to support free trade and the pilot zones.

But Vincent Chen, executive editor of Taiwan newspaper United Evening News, believes there will be no progress before Ma's term expires in 2016. "I don't think they will reach any kind of agreement," he says.

Chen says he agrees with the students demand for greater transparency in the government's dealings with China, but says the political impasse will hurt Taiwan's economy as Taiwanese companies are paying higher tariffs in their biggest export market.

Deputy minister of Taiwan's Mainland Affairs Council Chu Chiu-Lin says China has been "slowing down the negotiations" on free trade since the Sunflower movement prevented the services deal being signed.

Opinion polls since March show the Taiwanese public believes the pace of the KMT government's renewal of economic ties with mainland China has moved too fast. Beijing's indifference to Hong Kong's recent pro-democracy protests have deepened the Taiwanese public's suspicions.

Stymied by the anti-China sentiment at home, Taiwan is looking to regional trade pacts.

Vice minister for foreign affairs Vanessa Shih says Taiwan can't be "left on the sidelines" as other Asia-Pacific nations, including Australia, integrate their economies.

"This makes it imperative for Taiwan to join the Trans-Pacific Partnership," she says. The 12 countries negotiating the Trans-Pacific Partnership, including Australia, account for 35 per cent of Taiwan's trade. Australia's Trade Minister Andrew Robb said this week he expected the TPP to be finalised soon.

But China's opposition to any international recognition of Taiwan is likely to prove a hurdle to Taiwan's membership.

Taiwan's free trade pilot zones are designed to prove the country's free trade credentials to the Trans-Pacific Partnership, while convincing a sceptical Taiwan public that free trade is in the national interest, Shih says.

The multiple pilot zones include a modern $US16 billion eco-city to be built around the Taoyuan airport and the large southern container port Kaohsiung. Five foreign companies – none Chinese –and 37 Taiwanese exporters have signed up so far. But the biggest carrots – professionals pay only half their income tax for three years, while companies are exempt from business tax – can't begin until the Sunflower law is passed.

Kirsty Needham travelled to Taiwan with the Taiwan Ministry of Foreign Affairs.